Hi, Team! From time-to-time, I’ll do a mailbag post where I’m literally answering questions from readers just like you! So if you’ve got a burning question or would like a second set of eyes on a financial, business, or fitness situation, please feel free to reach out on Twitter or via email and my answer to your question may be featured in a post!
(Photo courtesy of Justin Montemarano)
Today, I’m responding to Jake, who asked a few things about credit cards and online savings accounts (my comments are in bold italics here):
1- What’s the best way for me to pay for a wedding ring that I don’t currently have the cash for but will in the next 12-15 months (he’s proposing in the next 2 months), and what are some things I need to be thinking about? Is going with a 0% APR for a year a decent option?
2- My girlfriend and I (she doesn’t even know that a new moniker is potentially in her future… Exciting!!) are looking to open up a joint savings account. What are some things we should be thinking about and what are the best options? (They’re planning to put away about $100/month into this account)
3- Besides my fantasy football league, and potential online sports betting, what are some financial things I should be thinking about?
Here were my responses with some personal info left out (sent previously via email – I wasn’t about to have any hand in delaying that ring purchase… Not this guy):
Congrats on the upcoming proposal!! That’s awesome! I wish you guys all the best!
Thanks so much for reaching out and for the well wishes and kind words. I really appreciate all of that.
Regarding your questions – I love getting these types of questions so thanks for reaching out and asking. Here’s my $0.02:
If your plan is to put the ring on a credit card, earn the points, AND pay off the card in the first year (while you have 0% APR), then I’m completely on board. If you don’t have a concrete plan in place to pay off the card in Year 1, I’d argue for a different path. (It sounds like the 1-year payoff is your plan but I’d make sure that is a top priority – even over student loans, tuition, mortgage,… whatever else).
When it comes to bad debt, credit cards are #2 on my list (right behind payday loans). Those interest rates will hold you on the ground, slap you around, and make you say ‘uncle’… No thanks.
But there’s another side to this
You have ~8 weeks to prepare and get ahead of this somewhat… What can you put away and save based on your current expenses and income? Something we’ve done in the past to shock the system is a spending freeze. We’ve gone up to a month on the freeze but essentially it’s spending money only on the absolutely necessary items and using the rest to either save or put toward debt. This can be a great way to get ahead if you need a boost… It’s also difficult to execute. But it’s exciting and 100% worth the effort.
To follow up, I’d ask what you’re planning to spend and how you’re planning to budget for it (and what timeframe you’re looking to pay it off)
If the numbers work out, there are some great card options for points and low APR options.
We use 2 cards in our lives: the AMEX Blue Cash Preferred (personal) and the AMEX blue for business.
These cards have been the best for us to produce consistently awesome rewards. We’re constantly buying stuff for free off Amazon via points for the business card (we spend a lot there). For the personal card, they offer 6% cash back for groceries, 3% for other categories (gas, etc…), and 1% on every dollar you spend. The rewards are awesome but if you’re carrying a balance – you’ll be in trouble because the APR is very high…
I’ve worked with a few clients to pay off their debts and they’ve used zero APR cards for some period of time. Because I don’t use them personally, I always use NerdWallet to get my reliable credit card info – they’ve consistently produced the best and most reliable information. Sorry, I can’t help more with this. But it’s common that 0% APR doesn’t pair with best rewards, it’s usually one or the other.
For your purposes, I’d make 0% APR a priority in the short term, pay it off, then use the Blue cash card exclusively in the long-term.
I LOVE this question. You’re thinking about all the right stuff!
DO NOT go to a bank and open up a savings account. Read this: Your savings account is wasting you time and money.
That was written a little while ago, but your current bank savings rate is low… like 0.1% low. I’d advise going with an online savings account. They have the same protections that regular banks do, just lower fees because they don’t have to spend on overhead (buildings/staff, etc.).
We use Ally and they are continually raising interest rates (a positive in this case). Currently, we’re near 1.8%. I’ve seen friends use AMEX’s version and in researching, I see the Goldman Sach’s version as well. I know Ally, they’ve been around longer and they’re one of the pioneers in this realm.
There are many copycats that have jumped in here and I think Goldman may be new to the space (but I also could be uninformed). Ultimately, as long as they’re FDIC insured and they’re a brand name – you should be good. HOWEVER – Well’s Fargo used to be respected… Online banking is literally what Ally does – I’d go there or AMEX.
The savings account 401 level class
The money going into your online savings account should be your emergency fund level and below…
Basically, anything that you need to keep liquid and have relatively quick access to. Anything you’re intending to ‘invest’ doesn’t go here because although 1.8-2% is phenomenal for a savings account these days, it’s still not close to market average and probably right at or under the CPI (inflation metric).
$100/month is nothing to shake a stick at…
I don’t care if you’re adding $10/month, the interest will act exponentially over time. $100 is solid.
Here’s an illustration for the difference
If you invest $100/month for 5 years in Ally at 1.8% = $6,331
If you went with the traditional bank (0.1%) = $6,081
You would’ve contributed $6k in either case… The points:
Ally/Online Savings is better
This is not an investment but a better way to keep liquid cash
If you put that cash into the market and got 7%… $7,383
Here are the 30-year numbers (just for fun):
Ally = $48,035
Bank = $36,563
Market = $121,287
(You contribute $36k in each case…)
Other than this, I would dive heavily into the gambling while you’re still in the know… jkjk…
Scroll to the bottom to start there and go onward. 4 posts left to publish in this series but this should get you started.
Here’s another resource for some of the best finance books that I’ve come across – as some additional info to get you started.
I’m stoked for you to be taking these steps and thinking about these questions in life, Jake. So many of our peers haven’t even considered much of this stuff. AND – thanks for reaching out. It’s great to catch up.
Alright financial friends – a few questions: A) Do you like the mailbag posts? B) Where do you agree with me and where I’m I failing our friend, Jake? and C) What would you add that I left out? Let us know in the comments below!
Thanks for reading!
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I’m glad you’re here. Thanks again and talk soon!